Verizon's subscriber growth cools as rivals turn up the heat

But the nation's largest wireless did post a profit for the second quarter and phone subscriber growth that topped expectations.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
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Verizon posted its secod-quarter results on Tuesday. Verizon

Verizon's customer growth may be slowing, but the company isn't going anywhere.

The nation's largest wireless carrier added more than 1 million net new retail customers, down nearly a third from a year ago. The growth, however, was good enough to reclaim some bragging rights over at least one rival.

Verizon shares fell 2.4 percent to $46.97 in early trading on Tuesday.

The results underscore the intensifying competitive landscape -- one in which the smaller upstarts, T-Mobile and Sprint -- have gotten more aggressive about picking customers away from the larger Verizon. It's just the latest quarter in which customer growth cooled off amid more attractive deals offered by rivals.

Despite the decline, Verizon did top rival T-Mobile in one key metric: The number of net new subscribers who pay at the end of the month, a lucrative base referred to as post-paid subscribers. Verizon added a net 1.1 million customers, fueled largely by the addition of 852,000 new tablets. But the company also added 321,000 phone customers, with smartphone gains offsetting declines in basic phones. The figures topped Wall Street expectations.

"It's a strong result, and reflective of Verizon's unwillingness to to cede share despite pricing risks," said Jefferies analyst Mike McCormack of the gain in phone customers.

While T-Mobile added a total of 2.1 million customers in the second quarter, it only added 1 million branded post-paid customers.

T-Mobile introduced a plan last month that allows customers to upgrade their smartphone as much as three times a year, as well as to roam to Canada and Mexico without additional fees. Sprint also stepped up its marketing campaign with what it argues is a more simplified pricing structure for unlimited data.

Verizon's prepaid business, in which lower-credit customers pay at the beginning of the month, fell by 126,000. It's continued decline comes amid gains by rivals such as T-Mobile's MetroPCS and Sprint's Virgin Mobile and Boost Wireless prepaid businesses.

Verizon's customer defection -- also known as churn -- was a bright spot, as its rate of retail postpaid customer departures fell to 0.90 percent from 0.94 percent a year ago. Total retail turnover rate also fell, as customers stuck with the service, which prides itself as having the best quality network.

"One of our priorities this year was improving customer retention," Chief Financial Officer Fran Shammo said on a conference call with analysts. "We're doing it with a disciplined approach focusing on high-value customers."

On the wireline side, Verizon added 72,000 net new Fios Internet connections and 26,000 net new Fios video connections, both down dramatically from a year ago. Shammo attributed the decline to heavier promotional activity from competitors such as Comcast and Time Warner Cable. The company has made adjustments to its own promotions, he said.

In total, it has a base of 6.8 million Fios Internet customers and 5.8 million Fios video customers.

The carrier said it expects a higher year-over-year revenue growth rate in the third quarter. For the year, it expects revenue growth of at least 3 percent.

Verizon posted a quarterly profit of $4.23 billion, or $1.04 a share, compared with a year-ago gain of $4.21 billion, or $1.01 a share. Revenue rose 2.4 percent to $32.22 billion.

Analysts, on average, forecast earnings of $1.01 a share and revenue of $32.45 billion.

Updated at 6:24 a.m. PT: To include executive and analyst comments and background throughout.